What is a Short-Term Loan?

In News by Clifford Steeves

A loan that you will repay in less than a year is a short-term loan.There are those businesses that are small and do not qualify for credit from the mainstream banks. This should not discourage you as you may still get funding to finance your short-term capital needs.The amount of money you can borrow is also small and ranges between one hundred to a thousand dollars. This means that the short-term loan will help you resolve emergency or small expenses.

The short-term loans will cater for either business or personal needs. They may include, education bills, health care, or act as a start up for a project you may be having. The biggest impediment to short-term loans is the high interest rate. The rate at which they approve your loan may be tempting, but be careful and understand all the terms and conditions. You should ensure you make your periodic payments without fail as this failure to repay on time attracts heavy penalties.

What is a Short-Term Loan

The reasons of taking short-term loans

They are helpful to small retail businesses as they can increase their inventory in anticipation of a busy period, especially the holiday seasons. The business owner is given time and repays the loan after the holiday season.

You may get a loan to raise your working capital, which covers deficiencies so that you may meet your day-to-day expenses.

Short-term loans will help you to pay bills, and maintain your cash flow.

How do you qualify for a short-term loan?

You need to have up to date documents and give them to your financier. It may be a credit union, bank, or micro-finance.

They will want your repayment history and your relationship with suppliers.

They also ask for your company’s flow of cash for the last five years.

The income statement is also very important and they may want to see how you have been performing for the last three years.

How you have been performing in the past will decide whether your loan will be unsecured, a signature loan, or it has to have collateral.

Advantages of short-term loans

Speed:

You are able to obtain it faster than the long-term loans. The lenders do not carry out analysis of your credit, as they do with the long-term loans.

Flexibility:

The small and medium companies do not have constant flow of cash and during the tough periods, they need to have access to cash. An overdraft will pay for your current bills and maintain your cash flow.

Management:

Lenders will not involve themselves in the management of your company because they have lent you small amounts of money. You will have full control and be able to make decisions quickly and those that you think are in the best interest of the company.

Risk:

The risk involved with short-term borrowing is low to both the lender and business owner.

Clearly, for the economy to operate without any hitches the availability of the short-term loans is very essential. Without this financing, many businesses will not be able to operate.